By Christy Santhosh
(Reuters) -Activist investor Engine Capital has urged Acadia Healthcare to add directors to its board and explore a potential asset sale to fund buybacks, sending the company's shares
up nearly 9% in afternoon trading.
Engine Capital, which owns about a 3% stake in the operator of centers that help people with mental health issues and addiction, said the company has sustained negative returns due to ineffective execution of its reorganization in 2022.
The reorganization shifted the reporting structure from geographies to type of service, Engine said in a letter to the company's board on Wednesday. The investor added that it was logistically much harder to supervise and visit facilities across the nation instead of within a region.
In response to the letter, Acadia said it regularly communicates with its shareholders and welcomes constructive input.
Guggenheim analyst Jason Cassorla said it was not surprising to see a new activist investor pushing for change, and Acadia's reduced free cash flow and lawsuits were "near-term nuances" impacting the company.
Acadia Healthcare is under investigation by the Department of Justice over allegations of improper practices in the operation of its psychiatric hospitals and behavioral health facilities.
In its letter, Engine Capital criticized the company's culture and urged for a major overhaul of corporate governance, a board refresh, cost cutting and sale of assets to repurchase undervalued shares.
The activist investor asked for the replacement of several long-tenured directors with new directors who possess operational skills in behavioral health and capital allocation expertise.
"It is clear from our research that the need for behavioral health services across the country is acute and will continue to grow," said Engine.
Acadia's shares are down more than 70% since reaching record highs in 2022.
(Reporting by Christy Santhosh in Bengaluru; Editing by Leroy Leo and Alan Barona)
